The "right" side of congress is wrong on spending...

The Coming Fiscal Hurricane
Wednesday, January 18, 2006
By: Jessica Shoemaker

Government Waste Watch, Fall/Winter 2005
(for complete article, click here)

Eleven years after the ink dried on the Contract with America, the Republican majority has failed to deliver on its promise of a smaller, more efficient government. Total federal spending has swelled by 67 percent, from $1.5 trillion in 1995 to almost $2.5 trillion in 2005. Waste, fraud, and abuse are rampant. The ticking time bombs of Social Security, Medicare, and Medicaid are for the most part ignored, along with the outrage of grassroots fiscal conservatives.

The Big Picture

Since it gained control of Congress in 1994, the Republican Party has presided over an explosion in federal spending and the national debt.

The federal budget is comprised of two types of spending discretionary and mandatory. Discretionary spending is what Congress and the President haggle over and dish out during the annual appropriations process. Accounting for about 40 percent of total spending, the discretionary budget encompasses functions like defense, homeland security, education, and highway construction. Funded at Congress’s “discretion,” such programs theoretically could be zeroed out every year.

On the other hand, mandatory spending is controlled or “mandated” by law. The mandatory budget grows every year without much review, modification, or oversight from Congress. This means that approximately 60 percent of the federal budget is essentially running on auto-pilot. Decades-old entitlement programs like Medicare operate much as they did when they were first enacted, not taking into account changing demographics or economic realities. More often than not, such programs are expanded rather than reformed.

The discretionary budget most clearly illustrates Congress’s penchant for spending and provides the most outrageous examples of pork and waste. Yet it is the mandatory part of the budget that presents the bigger long-term threat to the nation’s taxpayers and economic stability. Entitlement programs like Medicare and Social Security are structurally unfit to withstand changing demographics. An aging population, longer life expectancy, and rising medical costs will compound to create a fiscal nightmare for young Americans stuck with the bill.

The same basic structural deficiencies are driving the unsustainable growth of all mandatory programs. Mandatory spending is projected to nearly double over the next decade. Spending for Social Security, Medicare, and Medicaid now accounts for 8 percent of GDP. According to the Congressional Budget Office (CBO), that figure will rise to between 12 and 17 percent in 2030 and to between 13 and 28 percent in 2050.

Unfunded obligations are not included in the Treasury Department’s official debt figure of $8 trillion. Total shortfalls in Social Security and Medicare the difference between expected revenues and promised benefits over the next 75 years will be $4 trillion and $9 trillion, respectively. An additional $21 trillion is needed for Medicare’s supplemental obligations to cover items such as the prescription drug benefit. All of these figures combined equate to a total national debt of $42 trillion.

Congress cannot continue borrowing forever. At some point, creditors would stop lending the U.S. money, possibly triggering an Argentina-style economic meltdown. Eventually, the government will either have to make sharp spending cuts or drastically raise taxes to pay its bills.

Therein lies a major problem because Americans are already overtaxed. When accounting for the taxes and fees collected by all levels of government, the average American pays somewhere around half or more of his or her income in taxes. In fiscal 2005, the federal government spent $21,956 per household, taxed $19,147 per household, and ran a budget deficit of $2,809 per household, according to The Heritage Foundation.

The Government Accountability Office estimates that to balance the budget in 2040, the government would have to slash total spending by about 60 percent or raise taxes to 2.5 times today’s level. Alternately, Congress could eliminate all federal programs except Social Security, Medicare, and Medicaid by 2045. So much for those pesky constitutional functions like defense!

A Day of Reckoning is coming and big changes are inevitable. The longer Congress keeps its head buried in the sand, the more painful the changes will be for taxpayers and beneficiaries of government programs.

As Government Grows, So Does the Waste

Not surprisingly, government has grown along with the attendant waste, fraud, abuse, and mismanagement. In the discretionary part of the budget, Congress annually funds scores of agencies, programs, and policies that serve political or parochial interests, do not demonstrate results, duplicate efforts in the private sector, or circumvent procedural checks for transparency and accountability. In its 2005 edition of Prime Cuts, CAGW issued 600 recommendations for the federal government that could save taxpayers $252 billion in one year and $2 trillion over the next five years.

The auto-pilot status of mandatory programs leaves them especially vulnerable to waste and fraud. A 2001 report by the Department of Health and Human Services estimated that Medicare fraud, abuse, and payment errors cost taxpayers $11.9 billion a year. Not only are the federal government and states being over billed by Medicaid providers, the government is overpaying for prescriptions, with Medicaid reimbursements exceeding pharmacists’ true costs by $1.5 billion. Middle and upper-income seniors are voluntarily impoverishing themselves by either hiding or transferring assets to become eligible for Medicaid’s long-term care coverage.

Over the past five years, funding for the Food Stamp Program has increased from $20.1 billion to $33.4 billion. Currently, people who qualify for programs funded under Temporary Assistance for Needy Families are automatically eligible for food stamps, even though they may have incomes above the eligibility level. Also, non-citizens become eligible for food stamps after a mere five years of residency.

Another way in which mandatory spending programs waste tax dollars is by worsening the very problems they are designed to solve. Mandatory spending as it exists encourages dependence on the government at the expense of personal responsibility. In a 2004 report on the retirement prospects of baby boomers, the CBO stated that “about a quarter of baby-boomer households have so far failed to accumulate significant savings. They appear likely to depend entirely on government benefits in retirement.”

Anatomy of a Betrayal

With the dramatic increase in spending and alarming budget forecasts, fiscal conservatives are left to wonder about the Republican Party’s betrayal of its stated principles. Apologists say that along with power in a democracy comes the “burden of leadership.” A ruling party must represent the views of the nation as a whole and not just the base voters that put it in power. Compromise becomes a moral and practical imperative, or so the theory goes.

Republicans have not just compromised with the forces of big government, but fully embraced them. The No Child Left Behind Act has sparked a rebellion at the state level for its exorbitant price tag and federal meddling. The Medicare prescription drug benefit was the biggest expansion of the welfare state in 40 years. The $170 billion farm bill vastly increased federal farm subsidies. The $286.5 billion highway bill exceeded the President’s original price ceiling by $30.5 billion and was bursting with a record number of pork-barrel projects.

Congress cannot get off the hook by painting its actions as a manifestation of the “will of the people.” A statesman is duty-bound to follow the dictates of his conscience in accord with sound policy and must seek to persuade the voters of the rightness of his actions. Political scientists have documented for decades that most people do not have meaningful, well-formed views on most issues. Basing decisions on the whims of the masses is the mark of a demagogue, not a leader.

Hurricane Katrina and a New Hope

Sadly, it took the death and destruction of a Category 4 hurricane to make Congress politically willing to consider budget cuts for the first time in eight years. Initial estimates for the cost of rebuilding the Gulf Coast reached $200 billion. This led to a resurgence of attention to fiscally conservative initiatives that could be used to offset the emergency spending. But members of Congress only got serious after conservative activists held their feet to the fire.

To at least save face in light of the withering criticism of excessive spending, Congress is moving forward with its first budget reconciliation bill in seven years. The reconciliation process is a special procedure designed to speed the passage of deficit reduction legislation. Fiscal conservatives in the House boldly challenged House leadership and raised the reconciliation savings target from $35 billion to $50 billion. The House approved a $49.9 spending reduction (H.R. 4241), while the Senate passed a $35 billion reduction (S. 1932). Although these initiatives are commonly referred to as spending “cuts,” this characterization is too strong. Even if an amount near the House version is approved in conference, it will only restrain growth in mandatory spending by one-tenth of one percent over five years.

Entitlement reform on the state level is also showing promise. In October, the Bush administration approved Florida Governor Jeb Bush’s (R) new Medicaid plan, which limits spending for its 2.2 million beneficiaries and gives private health care plans new latitude to limit benefits. South Carolina Governor Mark Sanford (R) has proposed a similar program. Such Medicaid reforms could ignite a movement similar to the national welfare reform that began with changes made by former Wisconsin Gov. Tommy Thompson (R) in the 1990s. Democratic and Republican governors are united in their stance to reform Medicaid, but the program is a unique federal-state partnership and Congress must get on board to slow the program’s growth, which has soared 85 percent from $160 billion in 1997 to $295 billion in 2004.

The Democrats have offered no substantial cuts of their own; nor has the party acknowledged the seriousness of the coming entitlement crunch. This is clearly demonstrated by the rhetoric used in the debate over the budget reconciliation. Rep. John Spratt (D-S.C.), CAGW’s Porker of the Month in November, said the burden will be borne by “Single mothers seeking child support from deadbeat dads…Students struggling to pay loans for their college education, foster children, the sick and poor whose only access to health coverage is Medicaid, or whose nutrition depends on food stamps.” Statements like these are clearly ridiculous because Congress will have to cut mandatory spending at some point (unless it plans on taxing Americans into the Stone Age) and the changes were mostly administrative. Pretending that such action can be avoided forever is just passing the buck to future generations.

Conclusion

With neither party offering a solution to the looming train wreck, the best place for activists to turn may be their fellow citizens. There is a reason that politicians fear getting thrown out of office if they consistently vote for spending cuts: In many states and districts, they probably would. It is the great paradox of American democracy that most people favor smaller government and lower taxes in the general taxes in the general sense but tend to oppose cuts to specific programs. When such cuts are put on the table, common sense and sound thinking are drowned out by cries of sympathy for the children, the elderly, the Alaska Whaling Commission, or whatever group will be affected in the short term.